ECONOMY, ACTIVELYSHARE.COM — When a perfectly competitive market does not work well, an imperfect competitive market will be created. The emergence of various types of markets is a common occurrence in economic activity.
ActivelyShare will explain how imperfect market conditions are in the article below!
Understanding Imperfect Competition Market
Imperfect competition describes a situation where there are fewer sellers or traders in a market. Sellers are entitled to the sale of certain products and only they are allowed or able to sell a limited number of products.
The existence of a number of sellers in the market makes the determination of prices in the market unbalanced.
Characteristics of Imperfect Competition Market
In general, market conditions with imperfect competition can trigger conflicts due to the unequal number of sellers and buyers. The characteristics of an imperfect market include as follows:
1. Imbalance Between Seller and Buyer
Sellers and buyers influence market conditions. In imperfect market conditions, the market consists of only one or a few sellers with fewer buyers. This imbalance causes sellers to have more power in the market.
2. Seller Determines Price
Because sellers are more powerful than buyers and few parties influence the market, sellers are free and dominate in setting prices. Freedom and dominance allow companies to earn much greater profits.
This is due to minimal competition in selling goods in the market.
3. Difficult to Enter the Market
Industries in imperfect markets can only be run by certain parties. Because it can only be run by certain parties, it is difficult for other sellers to enter and start a business in the market.
This is in contrast to a perfectly competitive market where sellers are free to enter and exit the market.
4. There are no substitutes
The absence of freedom to enter the market makes the availability of substitutes for products with the same functions and benefits to be less or even difficult to find.
Advantages of Imperfect Competition Market
Despite the potential for conflict, there are several advantages to imperfect markets. The advantages can be described as follows:
1. Products Sold are of Superior Quality
Items that are hard to find and there are only a few sellers who sell them are usually superior and have many benefits.
This is very different when compared to goods or products that are easy to find.
2. Bigger Profit
The seller will get a much bigger profit. This is because the buyer does not have other options for substitute products and the price set by the seller is, of course, depending on the seller’s wishes.
3. Free of Production Cost
Before entering the market, the seller has researched whether or not he is able to enter the imperfect market industry.
Research will show that the products sold in the market are needed by society, such as fuel and electricity. Even without promotions and advertisements, buyers are already familiar with the products the company sells.
4. Encouraging Product Innovation
Product innovation is carried out to improve quality and benefit sellers in the future. This can be encouraged by patents or licenses held by the seller for the product so that the seller is free to explore for the sake of innovation.
Disadvantages of Imperfect Competition Pasar
When the market experiences imperfect competition, it will experience an economic fluctuation.
Benefits can only be enjoyed by certain parties. There are several disadvantages because the market is dominated by one seller or few sellers, namely:
1. Price Game
Because the market is only dominated by certain parties and the number of sellers is small quantity, it is very likely that a price game will occur.
The price game is increasingly detrimental to consumers. The inability of consumers to understand the price range that should be applied due to the lack of comparisons is also a factor in the price game.
2. Little Alternative
Consumers are faced with the absence of alternative products with the same benefits and functions. There is no other choice but to buy products from sellers who dominate the market.
3. Price Discrimination
Not only price games, sellers can also discriminate prices. Sellers can charge significantly higher prices for different groups of buyers for the same product.
4. Consumer Exploitation
The number of sellers who dominate the market compared to buyers makes the market risky for consumer exploitation. The impact of exploitation of consumers who can not act took over to balance the market.
Types of Imperfect Competition Markets
Imperfection causes the market to be of several types. Types of imperfectly competitive markets include:
Monopoly is a condition where there is one seller and many buyers in the market. The seller has great power, is known by the wider community, and has large capital.
The existence of large capital makes it difficult for new competitors to enter the market.
Sellers will usually assign patents (copyrights) and exclusive rights to products and improve quality through innovation in meeting consumer needs.
An example of a seller in a monopoly market in U.S is John D. Rockefeller’s Standard Oil Company, which controlling almost all oil production, processing, marketing, and transportation in the United States.
If a monopoly has only one seller, an oligopoly has several sellers who dominate the market with many buyers. Promotional activities are still needed to introduce products to the wider community and compete with other sellers.
The competition that occurs tends to be very tight. If there is a decrease in price by one seller, then other sellers will be affected and participate in lowering prices so that buyers do not turn to competitors.
Monopolistic markets consist of sellers who sell identical products but have differences and characteristics of each in terms of function, benefits, packaging, form, and others.
The number of sellers in this market is unlimited and new competitors can easily enter. Innovation and promotion are the determinants of the success of product sales.
In contrast to Monopoly, Monopsony market has many sellers with only one buyer. In this market, buyers are far more powerful than sellers.
The price of the product can be adjusted according to the wishes of the buyer, besides the seller will still seek as much profit as possible. The quality of the products sold is also more guaranteed because the seller tries to give the best for the buyer so as not to lose to other sellers.
Oligopsony consists of many sellers and several buyers, where the buyer will process the product for later resale.
Most of the goods sold in this market are raw goods that must be processed first to get their functions and benefits. Product prices tend to be more stable and more determined by buyers. However, the seller does not lose his power over setting the price.
Market conditions dominated by sellers make the need for supervision from related agencies in accordance with government rules and regulations so as not to harm buyers.
That’s a brief explanation of the imperfect competition market. Hopefully it can help and add insight!